How the OBBBA Fixes America’s Broken Loan System

The One Big Beautiful Bill Act (OBBBA) would deliver much-needed reform to federal student loans. For too long, borrowers have navigated a confusing maze of repayment options while taxpayers have shouldered the burden of poorly structured programs that lack accountability. The current system has created unsustainable debt loads while providing little incentive for educational institutions to deliver value.

The OBBBA would deliver comprehensive reform to the federal student loan system, guided by the principle of balancing student success with taxpayer savings. The legislation would introduce clear borrowing limits, streamlined repayment options, and institutional accountability measures that address the root causes of the student debt problem. These reforms would fundamentally restructure rather than simply patch the existing system, emphasizing simplicity, accountability, and long-term sustainability.

Streamlined Repayment Options

OBBBA would eliminate the confusing maze of repayment options that have plagued borrowers for decades. The new system would offer two clear choices: a Standard Plan with fixed monthly payments, or a Repayment Assistance Plan (RAP) featuring income-based payments ranging from 1% to 10% of Adjusted Gross Income with a $10 monthly minimum. The RAP would include significant borrower protections through waived unpaid interest, up to $50 monthly in principal matching to accelerate debt reduction, and qualification for Public Service Loan Forgiveness. All borrowers would receive loan forgiveness after 30 years of payments.

Responsible Borrowing Limits

The bill would establish clear borrowing caps to prevent excessive debt accumulation: $50,000 for undergraduates, $100,000 for graduate students, $150,000 for professional programs, and $50,000 for Parent PLUS loans. Annual loan limits would be indexed to the median cost of comparable programs, with schools empowered to impose stricter limits based on program quality and outcomes. This structure would protect students from unmanageable debt while incentivizing institutions to control costs.

Restoring Congressional Oversight

OBBBA would address regulatory overreach by blocking new Department of Education rules that increase federal costs and returning control of repayment policies to Congress. The legislation would repeal the Biden administration’s SAVE Plan, which was projected to carry a $220 billion cost and was passed without congressional approval.

Deferment and Forbearance Reform

The bill would close loopholes and encourage timely repayment through targeted reforms. Economic hardship and unemployment deferments would end for new loans after July 1, 2025, while forbearance is limited to nine months within any 24-month period. Borrowers would be able to rehabilitate defaulted loans twice, providing recovery opportunities while preventing abuse.

Pell Grant Modernization

The Pell Grant program would be updated to better serve today’s workforce needs by extending eligibility to short-term, high-value workforce programs and closing income loopholes by including foreign income and assets in calculations. A $10.5 billion allocation addresses funding shortfalls and protects future appropriations. These changes would ensure Pell dollars support programs with demonstrated returns and reach genuinely needy students.

Impact and Significance

The OBBBA student loan provisions would represent a comprehensive rebalancing of the federal student aid system. By establishing clear borrowing limits, streamlining repayment options, and creating institutional accountability, the legislation would create a sustainable framework that serves borrowers, taxpayers, and the integrity of American higher education.